Brazil's 232 exemption status unclear

SÃO PAOLO — The deadline for talks between the United States and Brazil over the Section 232 investigation into steel products is about to end without an agreement, but there may be some clues as to what will happen.

Brazil has been temporarily excluded from a 25% tariff on steel shipments to the US market while negotiations have been held between the countries. The exemption is valid until Tuesday May 1.

The US government has been pushing to impose quotas for steel products exported from Brazil, according to Brazilian steel association Aço Brasil.

On Thursday, Metal Bulletin was told by several sources that the US had offered a quota agreement for Brazilian steel exports based on average volumes shipped in the last three years.

If accepted, the quota would be limited to 70% of the three-year average for finished steel products and 100% of the three-year average for semi-finished steel products.

The idea of a quota system had been anticipated by Aço Brasil last Tuesday, when president Alexandre de Campos Lyra said that "surprisingly, we have only one week left to reach an agreement.”

At that time, the group was still demanding that semi-finished steel products, such as billets and slabs, be exempted from tariffs or quotas.

But according to a US government document seen by Metal Bulletin, Brazil-origin semi-finished steel goods are included in their quota offer (see table below).

Sources are signaling that Brazil will accept the deal, but with some discomfort. The major Brazilian steel producers were said to be meeting at Aço Brasil’s headquarters in Rio de Janeiro city on Friday to discuss the agreement with the US and the potential effects on the national industry.

So will Brazil accept the deal without demanding changes? Will Brazil accept it before the May 1 deadline? If not, will the US extend the exemption period or immediately apply the 25% import tariff?

Also, has the US asked for products other than steel to be included in the agreement?

Some local reports indicated that US authorities had asked Brazil to review ethanol import quotas as preconditions for a deal involving steel imports.

On Tuesday, however, Lyra said the negotiations were exclusively about steel materials.

He also said the quota system the US was expected to propose was a “hard” one.

In the case of hard quotas, for instance, if an annual volume of 100,000 tonnes is hypothetically defined for a specific product, once that volume is reached, the affected country cannot ship additional tonnage - even if it is willing to pay the existing import duties.

“Will the total volumes be inspected in [Brazilian] ports or in the US ports?” Lyra said.